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UPDATE 3-LSI boosts outlook on improved business demand
March 17, 2010 / 11:47 AM / 8 years ago

UPDATE 3-LSI boosts outlook on improved business demand

* Sees Q1 revenue $620-$640 mln vs Street view $608 mln

* Raises Q1 EPS forecast to 7-11 cents from 4-10 cents

* Sets $250 million share buyback plan

* Shares up as much as 12 percent (Adds CFO, CEO and analyst’s comments; updates shares)

By Ian Sherr

SAN FRANCISCO, March 17 (Reuters) - Microchip maker LSI Corp (LSI.N) raised its first-quarter results forecast on Wednesday on signs of renewed strength in corporate technology spending, boosting its shares as much as 12 percent.

The company’s updated outlook underscored expectations that a corporate spending rebound will help lead the chip makers and the technology sector in general out of the worst recession in decades.

LSI’s raised outlook follows speculation among investors that Intel Corp (INTC.O) would beat earnings estimates for the current quarter. That helped drive Intel shares up 4 percent and the Philadelphia Semiconductor Index .SOXX up nearly 3 percent on Tuesday. [ID:nN16101121]

The company, whose chips are used in hard drives and networking hardware, estimated first-quarter revenue at $620 million to $640 million, up from a previous $590 million to $620 million and higher than the average estimate of $608 million, according to Thomson Reuters I/B/E/S.

Analysts estimate that LSI derives about 80 percent of its revenue from corporations.

The company now expects first-quarter earnings per share of 7 to 11 cents, excluding special items. In January, it had forecast a profit of 4 cents to 10 cents. Analysts, on average, were expecting 7 cents a share.

LSI also said its board of directors had authorized a stock repurchase program of up to $250 million, which is equivalent to about 6 percent of its current market value of roughly $4 billion.

LSI Chief Financial Officer Bryon Look said that although the company focuses on maintaining its cash position, it would not rule out future repurchases.

“Our revised guidance reflects greater-than-anticipated strength in the recovery of enterprise IT (information technology) spending during the first quarter,” LSI Chief Executive Officer Abhi Talwalkar said in a statement, adding that the company had seen strength across all product groups. The Semiconductor index was up over 1 percent on Wednesday, as were Intel shares.

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For a graphic on U.S. semiconductor index performance,

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All of that impressed Kaufman Brothers analyst Suji De Silva, but he warned that LSI could still face challenges as the economy recovers.

“I don’t think people would say there’s a clear enterprise recovery yet -- these guys are levered to that,” he said.

ROOM FOR GROWTH

At an investor conference on Wednesday, LSI executives said they aim to expand margins in the company’s hard drive segment by focusing on revenue growth and cutting design costs, while expanding the company’s networking business as the world economy continues to recover.

De Silva said that as LSI increases its production volume to meet growing sales, its manufacturing partner will likely offer better rates, allowing LSI to grow its margins.

Talwalkar said the company had recently secured an important contract to deliver next-generation networking equipment to a wireless infrastructure player. He declined to specify the company, but mentioned Ericsson (ERICb.ST) and Nokia’s NOK1V.HE networking equipment arm Nokia Siemens Networks as possibilities.

Company executives have long stressed the opportunity in wireless network and infrastructure expansion as multimedia wireless devices continue to proliferate.

“It’s not just the capacity to move data around, but it’s the fact that the data getting moved around is much richer in content,” said LSI General Manager of Semiconductors Jeff Richardson. “Now you look at all the things we can do on our phones and you realize the amount of content flowing through the network ... is tremendous.”

With products aimed at both supporting the wireless infrastructure delivering that data, and the storage servers maintaining that information, LSI executives believed the company was well positioned in the market.

“The firm’s sharpened strategic focus and higher-value product offering is contributing to improved design win momentum that should translate into stronger revenue growth in 2011-2012,” FBR Capital Markets analyst Craig Berger said in a note to investors.

Talwalkar also said that although LSI has seen increased demand in each of its segments, there is still room for growth from its market share of 20 percent.

“We’re certainly nowhere near saturated,” he said. “We’re very confident that we’ve positioned the company both in terms of our current product line and future plans, (as well as) the pipeline that we’ve built, to grow faster than the markets that we participate in across all our product lines.”

Shares of Milpitas, California-based LSI rose as high as $6.54, before trading up 8.76 percent at $6.33 on the New York Stock Exchange late Wednesday afternoon. (Reporting by Ian Sherr in San Francisco; Additional reporting by Franklin Paul in New York; Editing by Lisa Von Ahn, Matthew Lewis and Richard Chang)

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